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Security. Neutrality. Transparency.
CME Group OTC Clearing
CME Group is the industry leader in OTC Clearing, delivering a broad offering spanning Interest Rates, Credit, FX, Energy, Metals, and Ags
OTC Product Progression
Coal Metals CDS, Ags, Gold Ferrous Metals
Natural Gas, Crude
IRS, Freight, Iron Ore
Founded in 1898 as CME (Chicago Mercantile Exchange) #1 derivatives exchange in the U.S. and globally by volume Global leader in exchange-traded markets with $3B in revenue Leading liquidity / volumes in global benchmarks across all asset classes Extensive and diverse distribution network and customer base International linkages with leading global exchanges
© 2012 CME Group. All rights reserved
Launched in 2002 to provide risk mitigation in energy markets following the Enron collapse Market leading OTC Clearing venue for a diverse range of commodities asset classes 1,700 listed contracts 10,000 registered users around the world 500,000 contracts cleared daily
and an additional 2. via one clearinghouse • IRS in the 7 currencies that account for 95% of the global vanilla IRS market • CDS in 45 North American indices.500 customer accounts testing Broadest Cleared OTC Product Scope Available to US Buy Side Customers • Operational efficiencies of a multi-asset class solution for IRS. including the most liquid CDX IG and HY indices • FX NDFs in the 12 most active non-deliverable currencies • Allows the unique opportunity to offer unparalleled capital efficiencies via portfolio margining of Cleared OTC IRS vs. CDS. All rights reserved 3 .Cleared OTC Financial Products Leading OTC Clearinghouse by US Buy Side Notional Cleared • CME Group worked closely with buy side and sell side participants to build a multi-asset class. market leading OTC clearing solution for IRS. Treasury and Eurodollar Futures • Builds on the strength of CME Group’s market leading Interest Rate and Foreign Exchange futures products • Provides customers full transparency through direct access to daily valuation reports and the CME CORE margin tool © 2012 CME Group. CDS. and FX. and FX • Over $600 billion in notional has cleared since launch and open interest is over $314 billion • 1.800 active customer accounts holding Cleared OTC open interest.
Record Customer Clearing Activity CME Group has built the leading OTC IRS.0 billion since it launched on October 17th. 2011 JPY IRS cleared ¥635. customer volume Interest Rate Swaps $32 $28 $32 Credit Default Swaps $280 $16 Total Volume Cleared = $480.3 billion Total Volume Cleared = $120. CAD IRS cleared C$10.8 billion $40 $24 Daily Volume (Billions) $210 Open Interest (Billions) $12 $20 $16 $12 $8 $4 $0 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May12 Daily Volume (Billions) $24 $8 $16 $4 $140 $70 $8 $0 Jun-12 $0 CDS Volume CDS Open Interest $0 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 IRS Volume IRS Open Interest Strong Performance of Newly Launched Products EUR IRS cleared €91.7 billion Open Interest = $277. 2011 GBP IRS cleared £11.5B since they launched on December 5th.2 billion since they launched on November 7th.S.7 billion Open Interest = $36. CDS. All rights reserved 4 Open Interest (Billions) .3 billion. and FX clearing service by U.8 billion since it launched on April 16th CDX High Yield Indices have cleared $20. 2011 Note: Data current as of 6/4/12 © 2012 CME Group.
3M. December 2010 © 2012 CME Group. GBP. EUR.3M CDOR index • JPY Fixed/Float out to 30 years. GBP. FRAs. Caps.3M and 6M EURIBOR indexes • GBP Fixed/Float out to 50 years.6M LIBOR index • AUD Fixed/Float out to 30 years. DKK. and Inflation Products * Notional amounts outstanding received from Bank of International Settlements. Cross Currency Swaps. HKD. Floors. 6M LIBOR index • CAD Fixed/Float out to 30 years. 3M and 6M LIBOR indexes • EUR Fixed/Float out to 50 years. EUR out to 50 years • Maturity out to 30 years for SEK. NZD. SGD Basis Swaps Amortizing Swaps in all currencies OTHER FUTURE PRODUCTS SEK DKK NOK HKD NZD SGD 4th Quarter • • • • Additional Currencies Swaptions. NOK. 6M BBSW index 2012 EXPANSION • • USD EUR GPB CAD JPY CHF AUD July OIS Product: USD.3M.6M LIBOR index • CHF Fixed/Float out to 30 years. and JPY OIS out to 30 years Zero Coupons Swaps: USD. All rights reserved 5 .IRS Product Rollout CME has delivered a comprehensive global product scope that includes the 7 currencies that account for 95% of vanilla IRS market EXISTING PRODUCTS • USD Fixed/Float out to 50 years.1M.
FX. CDS. and Commodities via one clearinghouse © 2012 CME Group. while enabling customers to terminate positions with any market participant Operational flexibility of a multi asset class solution for IRS. and submit trades through multiple venues to CME Clearing Straight through processing and real-time confirmation once the trade is cleared Protects the confidentiality of trading relationships. All rights reserved 6 . execute.Open Access Clearing Solution Several market leading affirmation platforms and Swap Execution Facilities have already connected directly to CME Clearing Bloomberg ICE Link Javelin MarkitSERV TradeWeb CME ClearPort CDS Migration Utility CME Clearing OTC IRS/CDS Clearing Members Bank of America HSBC Barclays JPMorgan Crédit Agricole-CIB BNP Paribas Morgan Stanley Citigroup Nomura Credit Suisse RBS PLC Deutsche Bank RBS Securities Goldman Sachs UBS Additional OTC IRS Clearing Members BNY Mellon Wells Fargo Negotiate.
All rights reserved 7 . and then accepts the swap for clearing 5 Client 1 Dealer 3 2 Affirmation Platform 4 5 CME Clearing House Product Account Credit 5 5 – CME sends “Cleared” notification back to the Affirmation Platform which displays the “Cleared” Status to each party Clearing Member (Client) Clearing Member (Dealer) 5 – CME sends a Clearing Confirmation to Clearing Member(s) once all is validated © 2012 CME Group.Trade Workflow Mechanics Straight Through Processing allows for real-time clearing and trade confirmations 1 – Dealer and Client agree to trade 2 – Dealer alleges swap to Client through the Affirmation Platform 3 – Client selects Clearing Member and verifies the swap through the Affirmation Platform 4 – Affirmation Platform sends the matched trade between Dealer and Client to CME Clearing House 5 – CME checks for validation of the product. account and applies credit limits set by Clearing member(s).
and Bootstrap Generator to produce a Zero Coupon curve PRICING INPUTS LIBOR: O/N. 15Y. monotone convex interpolation. daily discount factors. 20Y. T/N FRA: 0 x 6 CME Eurodollars – first 6 Quarterly Eurodollar contracts. All rights reserved 8 . and 30Y (SA. convexity adjusted Par Swap Rates: 2Y – 10Y. and valuations for each cleared swap position © 2012 CME Group. 3M LIBOR) REPORTING CME Group provides customers with full transparency including direct access to daily reports showing curve inputs.Transparent Valuation and Reporting Customers have full visibility into CME Group’s swap valuations VALUATION OVERVIEW USD IRS positions will be marked to market once per day at 3pm EST Pricing inputs obtained from wire service feeds CME Group utilizes OIS discounting.
All rights reserved 9 . © 2012 CME Group.com to gain access. Please contact CME’s Onboarding Team at (312) 338-7112 or onboarding@cmegroup.Details of Customer Reports Report Preliminary Trade Register End of Day Trade Register Curve Input Report Discount Factor Report CME Holiday Calendar Price Alignment Interest (PAI) Rate File Description Includes new and open trades as well as corresponding cash flows on positions cleared prior to 4:45pm EST on that day Includes new and open trades as well as corresponding cash flows on positions cleared on that day Contains the curve inputs of the CME Swap Curve Displays the daily discount factor out to 31 years Shows the CME Holiday Calendar Provides the rate used to calculate PAI Time 4:45pm EST Available in Testing Available in Production 8:00pm EST 4:30pm EST 4:30pm EST 3:00pm EST 1:00pm EST The above reports can be accessed through a secure FTP site.
capital usage and charges .Robust Financial Safeguards CME structured the IRS risk waterfall to protect our customers during times of market stress and mitigate systemic risk UNFUNDED SURVIVOR PAYS General Assessment Powers for IRS1 • Additional collateral that can be called upon should all previous layers of the waterfall are exhausted • Caps the limited resource waterfall • Expected to cover extreme scenarios that are optimally addressed using a mutualized pool rather than margins • GF Sizing considerations include risk. All rights reserved 10 . and portability concerns during periods of default IRS Non-Defaulting CMs Guaranty Fund CME Contributed Capital for IRS $100M DEFAULTER PAYS FUNDED • Contribution set aside by CME to help cure a default prior to dipping into the survivors’ funds Defaulting Member IRS Guaranty Fund Liquidity Charge Baseline Initial Margin • Each Member’s contribution to the GF • Liquidity charge accounts for protecting large concentrated portfolios whose closeout could cost more or take longer than baseline timeframe • Initial Margin is used to cover day-to-day P/L moves 1 The actual amounts will be based on the sum of the third and fourth largest net debtor profiles © 2012 CME Group. stakeholders’ incentives.
utilizing industry best practices. according to the results of stress tests. and compliance with customer protection rules and regulations Strong history of risk innovation. This allocation mechanism further provides incentive to risk diversification across FCMs © 2012 CME Group. All rights reserved 11 . industry expertise. which include all extreme historical events as well as “black swan” stress scenarios Allocated between different FCMs pro-rata according to the residual risk not covered by margins. crisis management. capital adequacy.Superior Customer Protections CME Clearing is the industry leader in mitigating risk for customers through the US FCM clearing model CUSTOMER PROTECTION STANDARDS The same customer protection standards apply to cleared OTC derivatives as to exchange-traded futures Clearing Member Firms are monitored and audited for risk. and a deep understanding of issues related to customer protection in the US agency model Comprehensive approach towards default management. and default exercises to ensure readiness in a market crisis ROBUST GUARANTY FUND Key layer of protection in the US Clearing market that serves as a “capital reserve” buffer during times of market stress and protects against systemic risk associated with catastrophic market events Sized to cover the simultaneous defaults of the 2 largest FCMs.
5 million customer positions from Lehman Brothers to a solvent clearing member • In wholesale porting transactions.Customer Account Portability Portability of customer positions and collateral is a cornerstone of CME customer protections CUSTOMER CONTROLLED PORTABILITY “TRANSFERS” Establishing and managing accounts at multiple clearing members • Clients maintaining accounts at multiple clearing members are able to control the timing and pacing of their porting transactions • In the agency model. All rights reserved 12 .2 billion of customer funds and 2. both in times of market stress and during the normal course of business • Portability is underpinned by CME Rule 853. governing transfers of trades © 2012 CME Group. at CME this is a matter of routine and standard practice PROVEN SUCCESS IN CUSTOMER PORTABILITY Wholesale porting from stressed to solvent clearing members • In September 2008. clients “own” their positions • The agency model supports portability. CME balances the need to assure client safety with recalibration of financial safeguards to minimize stress in the financial system • Portability is essential to customer protection. CME seamlessly ported all $2.
© 2012 CME Group. Futures with SPAN and Portfolio Margin of Futures and IRS with HVaR Trade Execution workflows in Interest Rate Futures and OTC IRS remain the same Eurodollar Futures U. 2012 CME Interest Rate Swaps *Customer Portfolio Margining is targeted for 2H 2012 pending regulatory approval.IRS Portfolio Margining CME will offer capital efficiencies via portfolio margining for OTC IRS and select Interest Rate Futures Customers will have the ability to move select CME Interest Rate Futures into Cleared Swaps Customer Account CME CORE will be enhanced to calculate: IRS HVaR.S. Treasury Futures Portfolio Margining CME working with Clearing Members on Straight Through Processing Solutions Portfolio Margining expected to launch for house accounts on May 7th. All rights reserved 13 .
across all currencies Scaled using Exponentially Weighted Moving Average (EWMA) based volatility forecasts Margin is currently the 99. All rights reserved 14 . © 2012 CME Group.IRS Margin Methodology Methodology For cross margining Eurodollar and Treasury Futures with IRS. CME will leverage the current multi-currency Historical VaR framework Margins built to provide 99% coverage over a 5-day closeout period Historical scenarios are: Historical VaR Generated using a 5-year look back period Synchronized across all observed tenors on the zero curve. as it accounts for risks including: Reasoning Switch of the Cheapest-to-Deliver (CTD) (applies Treasury Futures) Delivery timing (applies to Treasury Futures) Changes in the convexity adjustment (applies to Eurodollars) Covers extremely well-hedged portfolios (applies to Eurodollars) *Customer Portfolio Margining is targeted for 2H 2012 pending regulatory approval.7th % of portfolio changes (loss) across all scenarios Application Apply HVaR methodology to Eurodollar and Treasury futures prices Create a rolling time series of returns (prices) CME uses Treasury Future prices and Eurodollar prices (themselves) as an underlying risk factor.
5M 100K 230K 420K 890K Margined Together .2M 2. These values do not include transaction costs and are subject to change.2M . *** Customer Portfolio Margining is targeted for 2H 2012 pending regulatory approval.Portfolio Margining Examples Portfolio Portfolio Details Margin Savings Max* 2Y Invoice Spread 5Y Invoice Spread 10Y Invoice Spread 30Y Invoice Spread 2Y Swap vs ED Hedge 5Y Swap vs ED Hedge 10Y Swap vs ED Hedge 30Y Swap vs ED Hedge 2Y Treasury Note Futures vs Equivalent Invoice Swap 5Y Treasury Note Futures vs Equivalent Invoice Swap 10Y Treasury Note Futures vs Equivalent Invoice Swap Treasury Bond Futures vs Equivalent Invoice Swap 2Y IRS vs Weighted Eurodollar 2Y Strip 5Y IRS vs Weighted Eurodollar 5Y Strip 10Y IRS vs Weighted Eurodollar 10Y Strip 30Y IRS vs Weighted Eurodollar 10Y Strip 79% 79% 75% 67% 89% 86% 85% 69% Average* 64% 68% 58% 41% 72% 78% 71% 50% Margin Savings Details ($M)** Margined Separately . All rights reserved 15 .9M 6. where Gross Margin is the outright swap HVaR margin plus the futures SPAN margin (no offset benefit) and Net Margin is margining both swaps and futures in HVaR (with offset benefit).8M 1. based on back testing of portfolios from 2006 to 2011. * Savings = [Gross Margin – Net Margin] / Gross Margin.4M 1.1M 10K 30K 60K 280K Maximum savings is up to 89%. depending on market volatility. ** Values are rounded to nearest hundred thousand or ten thousand Dollars.9M 4. © 2012 CME Group.
Transparent Margins Through CME CORE CME CORE (CME Online Risk Engine) enables customers to calculate and evaluate their initial margin requirements for IRS and CDS Create New or Load Existing Portfolio Validate and Calculate Initial Margin Requirement Analyze and Review Results ENHANCE REPORTS TO INCLUDE ELIGIBLE DISCRIPTIVE DATA PHASE I: Transparency • • • Margin computation PNL reporting Curve scenario reporting PHASE II: Analytics** • • • • Delta ladder Stress testing Incremental VaR Analytics to support back-loading ** Future enhancements © 2012 CME Group. All rights reserved 16 .
All rights reserved 17 .5% (maturity based) Additional 1. Japan. and Sweden US Treasury Debt US Agency Debt US Agency Mortgage Backed Securities Corporate Bonds (IEF4) Money Market Mutual Fund (IEF2) Bank Deposit Program (IEF5) Haircut None 5%** 5%-10.5% for off-the-runs 11% 20% 3% None *The last three currencies are available for IRS only. Germany. JPY. © 2012 CME Group. CAD. GBP.5% for off-the-runs 0. AUD. Canada.5%-7% (maturity based) Additional 1.Flexible Collateral for Initial Margin CME Clearing accepts a broad array of collateral for the Customer OTC Account Class Collateral US Cash Non-US Cash (EUR.5%-11% (maturity based) Additional 1.5% for off-the-runs 3. France. CHF)* Sovereign Debt of UK. ** Haircut is only applied when cash is used to meet a margin requirement based in a different currency.
and bonds that are deemed ineligible due to changes (i.Corporate Bond Collateral Program Clearing Members can transfer securities into a tri-party account controlled by CME at either bank* as a term pledge to receive initial margin credit Overview • Allows corporates bonds to be pledged as initial margin collateral for both Cleared IRS and futures • Reduces costs of clearing for customers and creates further efficiencies for Clearing Members Bond Requirements • • • • • High quality bonds.e. is supported by a partnership with Bank of New York and JPMorgan Chase © 2012 CME Group. or putable) Over $300M in principal outstanding TRACE eligible Program Parameters • Haircut: (20%) • Concentration Limits: The lesser of 5% per issuance and 5% per issuer or $200M • Level II industry diversification (up to 25%) Eligible CUSIP List • CME Clearing will publish a list of eligible CUSIPs at the beginning of each month • CUSIP list will likely remain static except bonds that mature. IEF4. both domestic and global issuances Vanilla Bonds (Fixed rate bullet. etc) *The Corporates Collateral Program. at least A. distress.rating by NRSO USD denominated. All rights reserved 18 . callable. rating downgrade.
microsoft. Specifically.Customer On-boarding Resources CME CORE Margin Tool Web-based margin tool that enables customers to generate initial margins for IRS and CDS portfolios CME CORE can be accessed by doing the following: • Create a CME SMART Click ID at https://cmecore.aspx CME On-boarding Team Team of on-boarding experts who work with buy side clients to help them prepare to clear IRS and CDS. and ability to connect customers to the right resources at those firms The team can be reached at (312) 338-7112 and onboarding@cmegroup. All rights reserved 19 .com to request entitlements to CME CORE. and engage in testing the clearing process Extensive work with the affirmation platforms.com © 2012 CME Group.cmegroup. please email cme. in an email please provide the user ID and specify the request for the IRS/CDS asset email@example.com/getsilverlight/Get-Started/Install/Default.com/span/ • Once a SMART Click ID is attained. • Please ensure your desktop is equipped with a recent version of Microsoft Silverlight (MS Add On): http://www.
org/fia-and-isda-publish-documentation-for-cleared-swaps.futuresindustry.com Documentation between Clearing Member and Customer Clearing Member Futures Account Agreement (FCM Agreement) Clearing Member OTC Addendum Documentation between Customer and Execution Counterparty OTC Execution Agreement The FIA and ISDA published a template that market participants can use as a basis for negotiation: http://www. All rights reserved 20 .Legal Documentation Documentation between CME Group and Customer Exchange User License Agreement (EULA) • New customers must register their firm(s) online via the CME Exchange User License Agreement (EULA). which may be found at: http://www.cmegroup. provided it has the authority to do so.asp © 2012 CME Group. by notifying the CME ClearPort Facilitation Desk via email at firstname.lastname@example.org/clearport/registration.html • Investment Advisors and Fund Managers can take advantage of an alternative registration process which offers the flexibility to register managed funds.
com For general information.com © 2012 CME Group.com email@example.com 312 454 8312 312 466 4447 jack. All rights reserved 21 .com +44 20 3379 3726 jonathan. please contact : On-boarding Team 312 338 7112 firstname.lastname@example.org@email@example.com@cmegroup. please contact: Jack Callahan Steve Dayon Europe Jonathan Boyd Asia Way Yee Bay +65 6593 5560 wy.Next Steps and Contact Us Establish a relationship with a participating CME IRS Clearing Member Select affirmation platform and work with Clearing Member throughout testing cycles Complete required Clearing Member Customer Documentation Begin clearing trades For any questions regarding On-Boarding and Testing.
com Phone Number 646 855 9813 646 855 6506 212 526 6548 212 526 7101 212 841 3753 44 20 7595 8417 212 635 6927 212 635 8359 212 261 7234 212 261 3998 212 723 5943 212 723 4074 212 538 0761 212 325 4535 212 250 9831 212 250 8845 212 902 7582 212 902 3037 212 525 2353 44 20 7991 9132 212 622 0339 212 761 5206 44 20 7677 9685 212 667 2037 212 667 8981 203 897 2504 203 897 9869 203 719 2602 203 719 3408 704 715 0528 704 374 2103 UBS Wells Fargo © 2012 CME Group.firstname.lastname@example.org email@example.com sanjay. All rights reserved 22 .firstname.lastname@example.org stephen.com email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org luciana.com avi.bnpparibas.com julianna.com sandy.com nick.com edward.com email@example.com@firstname.lastname@example.org@bnymellon.otc.com jason.com email@example.com@firstname.lastname@example.org@citi.com email@example.com@firstname.lastname@example.org email@example.com reinhardt. Gore Dan Thomas Email firstname.lastname@example.org@wellsfargo.com email@example.com firstname.lastname@example.org karen.com email@example.com@firstname.lastname@example.org gavin.com email@example.com firstname.lastname@example.org elliot.com email@example.com@ubs.Cleared OTC IRS Clearing Firm Contacts Firm Bank of America Merrill Lynch Barclays BNP Paribas BNY Mellon Crédit Agricole-CIB Citigroup Credit Suisse Deutsche Bank Goldman Sachs HSBC JPMorgan Morgan Stanley Nomura RBS Contact Name Todd D’Agosta (US) Ed Allen (EMEA) Sandy Fleischman Patrick Corrigan Avi Pemper Gavin Dixon Sanjay Kannambadi Vipul Pal Marc Konigsberg Karen Orczyk Chris Perkins Mariam Rafi Neil Burke John Guthrie Elliot Barr Luciana Miranda Mike Dawley Jack McCabe Julianna Salazar Nick Marcelle Mike Schneider Jason Swankoski Mark Bortnik Sandeep Kohli Stephen Scalzo Brian Halligan (RBS SI) Madlen Dorosh (RBS SI) Ed Pla Reinhardt Olsen Jeff G.com mark.
and because only a percentage of a contract’s value is required to trade. Copyright © 2012 CME Group. All other trademarks are the property of their respective owners. used for explanation purposes only. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. and involves the risk of loss. and should not be considered investment advice or the results of actual market experience. Inc. all examples in this brochure are hypothetical situations. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. All references to options refer to options on futures. NYMEX is a registered trademark of the New York Mercantile Exchange.Disclaimer Futures trading is not suitable for all investors. traders should only use funds that they can afford to lose without affecting their lifestyles. Inc. and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. The Globe Logo. All rights reserved 23 . Therefore. CME Group is a trademark of CME Group Inc. All rights reserved. All matters pertaining to rules and specifications herein are made subject to and are superseded by official CME. © 2012 CME Group. Additionally. Current rules should be consulted in all cases concerning contract specifications. The information within this brochure has been compiled by CME Group for general purposes only. Futures are a leveraged investment. CME. it is possible to lose more than the amount of money deposited for a futures position. CME Group assumes no responsibility for any errors or omissions. CBOT and NYMEX rules.
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